On Friday we hosted a call with the Brexit Task Force team from the international law firm of Squire Patton Boggs. The team discussed the events following the UK’s exit vote and what the outcome of the vote spells for the UK and the rest of the world.
Along with the audio replay, below is a summary highlighting key discussion points and takeaways
Exit Procedure:
- While the expectation is for the U.K. to issue article 50 which is required for Brexit, Theresa May has said she won’t trigger the article 50 mechanism until year-end. Invoking article 50 is a three-part procedure:
- Article 50 (1): To issue, U.K. must do within constitutional laws
- Article 50 (2) and 50 (3): Negotiation of Details of Withdrawal Agreement taking into account a potential framework for future relationship. Withdrawal agreement has a two-year sunset period and requires a qualified majority with consent of European Parliament. Any extension to sunset period must come by way of a unanimous vote
Consequences:
- Freedoms that came with E.U. membership such as movement of goods, services, persons, and capital would cease to exist:
- For a US company that currently enters the European market through the UK, that form of access would be closed
- Mutual recognition and passports will not be applicable any longer
- Banks, insurance companies, airliners, etc. will not be able to conduct business as usual (will need to develop new licenses and branches within the 27 member states)
- EU Jurisdiction and Enforcement Regulation: core judgements applied by a European-based court will cease to apply to UK-based court
- EU Insolvency Regulation: currently provides protection of European-based companies. Insolvency proceedings being prevented against other EU based companies would not apply. Insolvency cases would yield to the domestic laws of the 27 EU countries to decide how UK-based companies will be treated
Contracts:
- Future Contracts: The implications of company contracts with the UK with reference to EU rules or EU trade will depend on the governing law on those contracts
- Existing Contracts: Be prepared to expect the triggering of explicit and implicit termination rights, frustration, increased costs, market disruptions
Potential Exit Scenarios for the U.K.:
- Customs Union (Turkey)
- Tariff-free
- No say in EU trade deals with third parties but must abide by their rules (i.e. Turkey is not sitting at the negotiation table between EU and US on TTIP discussion but will need to comply with all the rules that come about)
- No free-movement
- EEA – e.g. Norway
- Outside the Customs Union – not mentioned much in the press; being outside means more customs paperwork and hassle
- They pay reduced dues to the EU but no vote at European level
- Accept free movement from EU and EEA – was very sensitive topic during campaign; making EEA not a very likely model for the UK
- No say in EU rules
- Bilateral Agreement – e.g. Switzerland
- More than 120 bilateral agreements since 1956 on various specific sectors and matters
- It took 20 years to negotiate and talks are still ongoing
- No access to financial services (Swiss) / insurance dealt with separately (i.e. Passport Rights)
- Accept free movement of persons
- Outside the Customs Union
- No say in shaping of EU rules
Labor, Employment, and Immigration:
- An agreement will have to be made for 3 million EU born UK residents and some 1.8 million British passport holders in EU countries
- Post-Brexit UK immigration policy without free movement would look very different to current UK policy
Is it realistic that exit negotiations can be completed in 2 years?
- No, we’ve never seen a deal close within a 2 year period in the history of negotiations
Does the U.K. have any bargaining leverage with the EU after invoking Article 50? Is a good deal for them possible?
- The strong message coming out of Germany and France are that you don’t get the right of access to a single market unless you agree to freedom of movement of people; does not seem to be a point that the UK people are keen on
